Dow Jones Earnings to Offer Insight on Global Growth & Trade Wars
Dow Jones Forecast:
- Traders will look to earnings from Caterpillar (CAT) and UPS to glean information on the state of global and domestic growth
- The largest component of the Dow Jones, Boeing (BA), is also due to report before market open
- Interested in earnings season? Learn about the key facts and why it is important to the stock market
Dow Jones Forecast: Index to Take Cues from Major Earnings Reports
The Dow Jones climbed near record highs on Tuesday after it was revealed US negotiators would travel to Beijing next week in an attempt to resolve the ongoing trade dispute. The resultant optimism bolstered the Average following a string of mixed earnings from companies like Coca Cola (KO) and Lockheed Martin (LMT). As Wednesday approaches, Caterpillar, UPS and Boeing will take position as the Industrial Average’s key corporate influencers.
Caterpillar to Offer Insight on Global Growth
Caterpillar is often viewed as a bellwether for the global economy as investors view heavy machinery demand as an indicator for construction activity and therefore growth. With that said, CAT warned last quarter of waning demand in China – which aligned with slowing growth in the country – alongside increased competition in Asia. The headwinds conjoined to pressure the machinery manufacturer lower and shares have made little progress in the quarter since.
Caterpillar (CAT) Stock Price Chart: Daily Time Frame (October 2018 – July 2019) (Chart 1)
Implied volatility for CAT shares is expectedly heightened ahead of earnings, with options pricing suggesting a 4.6% move in either direction. Coincidentally, the implied price range encompasses two key technical levels at each end of the range. To the topside, a descending trendline from January 2018 will look to keep a lid on CAT shares around $143 – where it collides with a nearby Fibonacci level. Conversely, Caterpillar shares will look to the 200-day moving average around $132 for support if earnings seriously disappoint.
UPS & Boeing Earnings to Highlight Trade Wars
While Caterpillar will offer useful information on the state of global growth, United Parcel Service (UPS) and Boeing (BA) are likely to deliver updates on the state of another headwind facing equity markets – trade wars. That said, each stock faces a different challenge under the umbrella of the larger theme.
The revenue of United Parcel Service is largely tied to global shipping and package delivery trends. Thus, lower economic activity due to slowing growth or widespread trade conflicts will look to weigh on the company’s profit. UPS leadership will likely offer commentary on both these themes and their respective outlooks.
UPS Stock Price Chart: Daily Time Frame (January 2018 – July 2019) (Chart 2)
Boeing & Airbus Debacle Continues
Dow Jones heavyweight – Boeing (BA) – faces a much more specific trade war threat as the EU and United States continue to lobby for their respective airplane manufacturer at the WTO. An exchange of tariffs and counter-tariffs have seen two of the world’s largest economies trapped in a trade conflict spanning months. After facing another round of potential tariffs from the United States, the European Union has expressed a willingness to respond by placing levies on goods with close ties to President Trump’s base. For more information on this conflict, follow @PeterHanksFXon Twitter.
Alongside the issues with the European Union, Boeing continues to grasp for an answer to the issue in its 737 Max models which resulted in two fatal crashes. Just last week, Boeing announced a $4.9 billion payment associated with the grounding of the model. As long as the 737 Max remains unfit for flight, airlines will seek compensation for lost profit. In summation, BA faces a series of headwinds and as the largest member of the Dow Jones, could put significant pressure on the Index if results disappoint.
Boeing (BA) Stock Price Chart: Daily Time Frame (January – July) (Chart 3)
Perhaps to the chagrin of bears, Boeing stock enjoys a nearby confluence of support in the $365 area marked by the 200-day moving average and ascending trendline from June. While fundamental themes will remain the primary drivers behind the stock’s price action, technical levels will look to exert any influence they can muster in an attempt to stall price in either direction. As these three large-cap stocks look to flex their muscle over the broader Dow Jones Index, check out the weekly technical forecast for the Dow Jones, Nasdaq 100 and DAX 30 for important price levels.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.